Global Policy Forum

By Brian Whitaker

Jordan, battered economically by almost nine months of Israeli-Palestinian conflict, is preparing for another blow. As the first casualty of "smart" sanctions against Iraq, it could lose its entire oil supply, as well as its main export market.

Under the proposed sanctions regime, to be debated by the UN security council next week, civilian trade with Iraq will be relaxed but border checks for military or dual-use goods will be tightened. This will place extra responsibility on Iraq's neighbours, and President Saddam Hussein has threatened to cut trade with any country that helps to implement the sanctions.

The Iraqi threat, says one western diplomat, is both credible and - in the case of Jordan - devastating. "Jordan would have to abide by an international resolution, but Iraq would retaliate. It would be political and economic suicide," the diplomat said.

Jordan gets a combination of free and cheap oil from Iraq, saving up to Dollars 300m (pounds 200m) a year on market prices. In return, Jordan supplies Iraq with a variety of goods. No money changes hands, but the barter accounts for about one-third of Jordan's exports and thousands of livelihoods depend on it.

"Whatever we do we are damned," said Taher al-Masri, a former prime minister. "If we go along with the new sanctions we will be really harmed. If we don't we are damned with the United States."

Public opinion in Jordan is solidly behind Iraq and the newspapers are full of alarmist but misleading reports of what the new sanctions entail. The Jordanian government has publicly declared its opposition to "smart" sanctions but has privately assured the west that it will accept them.

But it has little option but to defy public opinion and fall into line, not least because its free trade agreement with the US, signed last year, is still awaiting congressional approval. Replacing the Iraqi oil at market rates, according to a report for the World Bank by a Jordanian economist, May al-Taher, would cost Dollars 750m-Dollars 1bn a year. Jordan simply does not have the cash. Its total exports in 1999 were less than Dollars 2bn and its trade deficit was Dollars 1.5bn.

One option would be a big increase in petrol prices. But with super at 32p a litre and regular at 25p, that would be a political nightmare. The last time Jordan raised petrol prices six people died in riots. Earlier this year the government proposed a modest increase but rapidly backed off in the face of fierce opposition.

Last week the Foreign Office confirmed that security council members were holding talks with Jordan about compensating it for any losses caused by "smart" sanctions. "We are determined that they should not be disadvantaged in any way by the new arrangements, and that the new arrangements should be developed in consultation with them," a spokesman said.

Although officials refuse to comment on possible mechanisms, the most likely option would be to make Iraq compensate Jordan - plus Syria, Turkey, and perhaps Iran - for their trade losses from the UN's oil-for-food programme.